Univariate time series regressions of the forex return on the forward
premium generate mostly negative slope coefficients. Simple and refined
panel estimation techniques yield slope estimates that are much closer to
unity. We explain the two apparently opposing results by allowing for both
additive and multiplicative news. No arbitrage arguments imply that the
multiplicative news component must be identical across all exchange rates
at a given point in time. Cross section estimates reveal that the movements
in the multiplicative news component are so large that a negative
slope coefficient for the post Bretton Woods time series regressions is not inprobable
